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The rapid and frequent improvements to the US stock market outlook as Wall Street strategists scramble to keep up with the rally have been eye-catching, but nowhere near as optimistic as economists are.
Take a look at this chart of the US consensus forecast for US real GDP growth in 2024, from UBS.
A reminder that in mid-2022, nearly four in five economists polled by the Financial Times predicted we would be in a recession by now. The initially hard landing has become a soft landing, and now looks more like a short refueling landing. Even Ray Dalio seems somewhat optimistic.
As Torsten Slok, chief economist at Apollo, wrote over the weekend, with emphasis below:
The market entered 2023 anticipating a recession.
The market entered 2024 anticipating six cuts from the Fed.
The reality is that the US economy is not simply slowing down, and the Fed's pivot has provided strong headwinds for growth since December.
As a result, the Fed will not cut interest rates this year, and interest rates will remain high for longer.
Of course, this undermines one of the biggest factors behind the breadth of the stock market rally. Which should send the stock lower. This would affect confidence and motivate investors to price in interest rate cuts. Which is good for stocks. Aren't markets fun?
In-depth reading:
– Comprehensive summary of 2024 Investment Outlook (FTAV) reports
